Continuous Disclosure: PGW assets attract scrutiny, biggest broker missing in action

FNZC chief executive James Lee accepting Sharebroking Firm of the Year at the 2017 Infinz awards. Photo: NZ Herald.

Continuous Disclosure is a market news column, including analysis and opinion. Edited by Duncan Bridgeman, Tamsyn Parker and Jamie Gray.

In today's edition:

• PGG Wrightson takeover speculation
• FNZC missing in action
• Ebos' next acquisition target

Slimmed-down rural services company PGG Wrightson is seen as a potential takeover target now that its capital return to shareholders from the sale of its seeds business has been confirmed.

With a refreshed board and an ongoing review of the company's structure, the business is entering a new phase and is likely to attract renewed attention from potential buyers both here and in Australia.

Corporate activity across the Tasman is also fuelling speculation about PGG Wrightson's future, with Nutrien's A$469 million takeover of Ruralco expected to be concluded by August.

That would leave Elders as the last major Australian-owned farm services provider looking to build on its position.

Last year Elders reportedly ran the ruler over PGG Wrightson before Denmark-based DFL paid $413m for the company's seeds business.

Meanwhile, the Cushing family have taken a 2.6 per cent stake in PGG Wrightson, with David Cushing appointed an independent director, joining chairman Rodger Finlay, who also chairs Rural Equities, which is controlled by Cushing.

Market sources say retail-orientated agriculture firms are looking at PGG Wrightson more closely again to see what value can be derived from the remaining business.

"I'd put that probability as high," said one, who highlighted about $10m worth of annual costs that could be stripped out now the seeds business was gone.

"It's a good business with good presence, not just in rural services, but also in real estate as well."

PGG Wrightson has sold its seeds business and is now focused on rural services and real estate. Photo: Hawke's Bay Today

PGG Wrightson has just announced it will return $235m to shareholders via a share buyback following the seeds sale, having initially flagged up to $292m.

Finlay told investors the outlook for the rest of the year was mixed, with operating earnings will likely be at the lower end of the $25-30m guidance.

PGG Wrightson shares recently traded at 53 cents, valuing the company at $400m.

Where's FNZC?

New Zealand's largest investment bank is set to be missing in action from the annual finance industry awards.

The INFINZ awards, which are set down for May 22, usually include a number of nominations and wins by First NZ Capital.

But the only mention this year is as a finalist in the debt market issue of the year for its involvement as a joint lead manager for the NZX's $40m subordinated note issue.

James Lee, FNZC managing director, said after consultation with INFINZ it had decided not to enter this year, although it remained supportive of the work INFINZ was doing to improve the capital markets.

"When we looked at the decisions we need to make in our business, how we apply our values, the changing industry economics and expectations, we found those choices were inconsistent with industry-wide approaches to panel systems, as opposed to tailored client approaches.

"INFINZ has been very rewarding for us over the past decade, so it was a hard but necessary choice. We decided we would further tailor our offering to our clients' individual and specific needs, intently focusing on their outcomes."

Lee said the industry was going through significant change due to new regulations, new capital requirements, technology changes, and the banks in general had an increased focus on their role in society.

"As New Zealand's largest investment and advisory firm we are determined to be a leader in terms of the evolution required. This involves continuing to consider our strategy through the lens of our values which are client-focus, respect, thought leadership and excellence.

"As we focus on what we are building, we considered what role industry awards have in terms of shaping industry views on our strategic direction, as opposed to our own clients' views on that direction."

Lee said it would maintain sponsorship of the communication awards as it believed clear communication was vital for corporates to get right.

Ebos eyeing numerous acquisitions

Medical and petfood distributor Ebos Group is said to be eyeing eight companies as potential acquisition opportunities.

The company is cashed up after its recent $175m institutional placement, which has already proven a win for those who were allowed into the deal.

The new shares were allotted at $19.70 and Ebos' share price has already risen to $21.96 - not far short of the $22 a share it was trading at mid-April before the placement deal was done.

Ebos share price, NZX trading.

The exclusion of retail investors was slammed by the New Zealand Shareholders Association, which described the deal as a "free gift" to larger organisations while smaller shareholders saw their holdings diluted away.

The association also questioned the need for the urgent capital raising, given Ebos' strong balance sheet and cashflow.

But one market source said the company did need to raise money to give itself headroom after winning the tender to supply the pharmaceuticals to retail giant Chemist Warehouse and My Chemist.

The five-year contract, which included distribution to more than 400 stores, kicks in from July 1 and the inventory cost is said to be high.

Following the placement, Ebos' pro-forma net debt-to-ebitda (earnings before interest, tax, depreciation and amortisation) ratio has fallen to 1.51 times at December 31 from 2.16 times.

That opens the door for it to consider acquisitions again - a well-trod trail which has already been very successful for the company.

So far it is staying mum on which companies it is looking at but analysts say another pharmaceutical manufacturer like vitamin-maker Red Seal would make sense or a company in the medical devices space.

Last year it lost out to private equity on its bid to buy Device Technologies. Australian private equity firm Navis Capital Partners snapped up the company for around A$700m.

Stephen Ridgewell, senior research analyst at Craigs Investment Partners, which has a buy rating on the stock, said in a recent note that acquisitions were most likely to be of consumer brands.

"At its investor day last year, management set a target to increase revenue from its consumer brands segment from $118m in FY18 to up to $500m within the next five years, and we expect much of this growth will come from acquisition (subject to attractive brands being available at appropriate prices)."